Pre-notice payment of service tax and interest bars penalty proceedings under Section 73(3) of the Finance Act, 1994.

Where service tax and interest are paid and the authorities are informed before issuance of the show cause notice, Section 73(3) of the Finance Act, 1994 bars notice for recovery of penalty. On those facts, the assessee had discharged the tax liability with interest before notice, so penalty under Section 76 was not leviable. The Karnataka HC upheld the order setting aside the penalty and sustained the Tribunal's deletion of the penalty in favour of the assessee.

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Issues: Whether penalty under Section 76 of the Finance Act, 1994 was leviable when service tax and interest had been paid before issuance of the show cause notice.

Analysis: Section 73(3) of the Finance Act, 1994 provides that where the tax and interest are paid and the fact is intimated to the authorities, no notice should be served for recovery of penalty. As the assessee had discharged the tax liability together with interest before the show cause notice was issued, the statutory bar against notice for penalty was attracted.

Conclusion: Penalty was not exigible, and the order setting aside the penalty was upheld in favour of the assessee.

Final Conclusion: The appeal failed and the Tribunal's order deleting the penalty was sustained.

Ratio Decidendi: Where service tax and interest are paid and intimated before issuance of the show cause notice, penalty proceedings are barred by Section 73(3) of the Finance Act, 1994.

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